Domino effect

A steady flow of strong US corporate earnings, encouraging economic data and an oil price below $60 a barrel are presently driving the US stock market. Growing expectations both of a soft rather than a hard economic landing next year as well as a belief that interest rates have peaked are underpinning equity prices on the other side of the Atlantic. Meanwhile, the latest US consumer inflation figures for September was lower than forecast although the core inflation rate is creeping higher on an annual basis.

On this side of the pond, for a pleasant change, the pharmaceutical and biotech sector was easily the best performing sector last week - thanks especially to sterling performances from AstraZeneca (AZ) and GlaxoSmithKline (GSK) ahead of their third-quarter results presentations on Thursday. AZ was the third best performer among FTSE 100 stocks with a 4.5 per cent rise, lifting it to within a whisker of yet another new high for the year.

AZ continues to benefit from talk still doing the rounds that it is a takeover target for a mega-pharma deal. A repeated outperform advice from Credit Suisse helped boost the AZ share price as did Dresdner Kleinwort's expectation that the group would raise its 2006 earnings guidance when its numbers are released.

AZ shares also benefited from news that it had submitted to regulatory authorities in the EU and Canada for marketing approval of the sustained release once-daily formulation of Seroquel for a treatment of schizophrenia. In the US, Seroquel is the number one prescribed atypical antipsychotic with global sales of $2.8bn last year. Furthermore, the US regulatory authorities at the end of last week approved Seroquel for the treatment of manic depression.

There was plenty of market speculation about impending developments at GSK, propelling its share price (which has been a bit in the doldrums recently) significantly higher. One view that was bandied about was that GSK is thinking of undergoing a major restructuring involving the sale of its consumer healthcare business, as have rivals Roche and Pfizer. Analysts generally dismissed out of hand such talk, pointing out that a couple of weeks ago the group bought CNS, a US maker of nasal strips and dietary supplements.

Speculation also focused on GSK doing a mega-deal. US group Bristol-Myers Squibb is reported to be a favoured target as its strength in cancer and cardiovascular treatments would make for a good fit. News that Switzerland is buying 8 million doses of GSK's H5N1 influenza vaccine also helped stimulate investor interest in the share.

Shares in Hikma Pharmaceuticals retreated on Tuesday morning after the pharmaceutical group with major interests in the Middle East released a trading update that full year generic sales would be slightly below those achieved last year. Decreasing wholesale inventories and a lower than forecast contribution from new product launches were given as the main reasons for the disappointing sales. Its branded and injectables businesses, however, are both expected to deliver strong growth for the year.

Among the small market cap stocks, drug development firm, ImmuPharma stole the limelight with a near 30 per cent jump last week after releasing positive phase II trial results for its lupus treatment. EiRx Therapeutics, the Irish drug developer, rose by more than a fifth on the back of rumours that it was close to concluding a deal with a sizeable US group for one of its cancer treatments. The group announced positive breast cancer data. Rumours of an imminent deal for biotech Proteome Sciences sent its share price soaring.